There is an air of positivity in the Dublin offices of the Irish Business and Employers’ Confederation (Ibec) that is in contrast to the way the economy is portrayed in media and political circles.
The view from Baggot Street is that the economy turned a long time ago, but that the “confidence genie” is refusing to come out of the bottle to boost the domestic sector and create much-needed jobs.
Earnings and spending power are going up, according to Ibec’s chief executive Danny McCoy, but spending is not. This is why, for the first time since the crisis began, the organisation is differing with the Government over what should be done in the budget.
Ibec still believes the deficit in the public finances needs to be narrowed, but it believes the Government should do so by chasing extra tax revenue from increased economic activity, rather than by upping tax rates or introducing more of what McCoy calls “sneaky stuff”.
This "go for growth" view of economic policy puts the organisation in the same general position as the Irish Congress of Trade Unions, but McCoy is quick to point out that, in Ibec's view, the choice only exists now because of what the years of austerity have achieved.
Ibec vs Fiscal Advisory Council
The position puts Ibec at odds with the Fiscal Advisory Council, which believes it would be an idea to close the deficit as per the Government's targets, or even a bit more, so as to have some leeway should the Irish economy encounter unexpected bumps on the road.
McCoy says the council is, by its nature, focused on the public finances rather than the economy overall.
He and Ibec chief economist Fergal O’Brien say the irony of Ireland’s recent economic history is that, while the world has been convinced by the heavy lifting that the Irish have done, the domestic audience has yet to be convinced. It is this that explains the continuing high level of savings and subdued consumer spending.
People’s lives have been on hold for half a decade and Ibec believes there is a lot of pent-up expenditure out there, whether it be for moving home, getting work done on the home or buying new products or services.
A growth in consumer expenditure would give a labour-intensive boost to the economy. Every household that moves home, for example, spends approximately €20,000 on new furnishings and household equipment.
A huge number of people are in the wrong home – it is too small for their growing family or too big now the children have flown – but have been delaying moving because of the weak property sector and an overall lack of confidence in the economy.
What Ibec wants the Government to do with this budget is to send out the signal that most of the work on the deficit in the public finances has been done, that no new tax is going be levied over and above that already announced, and that this budget marks a return to national sovereignty.
Ibec believes the potential of the economy in the medium term is for annual growth of 3-4 per cent, with small- and medium-sized firms providing much of the energy. Much of what is needed is in place, it says. The missing ingredient is domestic confidence.
“What Ireland has done [since the crisis began] has put us way ahead of our competitors,” says O’Brien. “We need to kick on now in terms of the growth phase.” According to McCoy, the message of this budget should be that the hard work has been done.
